Semiconductors are the core infrastructure powering the Information Age. Still, they’re subject to swings in the broader economy because customers often stockpile chips ahead of demand, and investors seem to believe that inventory levels are correcting - over the past six months, the industry has shed 4.5%. This drawdown is a far cry from the S&P 500’s 7.5% ascent.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here are two resilient semiconductor stocks at the top of our wish list and one we would avoid.
One semiconductor stock to sell:
FormFactor (FORM)
Market cap: $7.61 billion
With customers across the foundry and fabless markets, FormFactor (NASDAQ: FORM) is a US-based provider of test and measurement technologies for semiconductors.
Why Are We Cautious About FORM?
- Annual revenue growth of 5.2% over the last five years was above the sector average and underscores its products and services value to customers
- High input costs result in an inferior gross margin of 45.1% that must be offset through higher volumes
- Low free cash flow margin of 10.7% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $93.53 per share, FormFactor trades at 27.6x forward P/E. Read our free research report to see why you should think twice about including FORM in your portfolio.
Two semiconductor stocks to watch:
Marvell Technology (MRVL)
Market cap: $191.5 billion
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Why Are We Positive on MRVL?
- Market share has increased this cycle as its 22.3% annual revenue growth over the last five years was exceptional
- Demand will likely accelerate over the next 12 months as its forecasted revenue growth of 65.4% is above its two-year trend
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
Marvell Technology is trading at $208.72 per share, or 44.5x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
MACOM (MTSI)
Market cap: $19.28 billion
Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.
Why Do We Like MTSI?
- Annual revenue growth of 30.9% over the last two years was superb and indicates its market share increased during this cycle
- Projected revenue growth of 50.4% for the next 12 months indicates demand will rise above its two-year trend
- Earnings growth has topped the peer group average over the last five years as its EPS has compounded at 18.1% annually
MACOM’s stock price of $240.07 implies a valuation ratio of 31.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-quality stocks for all market conditions
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